Ability to scale-up supply chain programs: Incremental liquidity from banks and institutional investors
One of the basic fundamentals of the supply chain financing is based upon the fact that the seller’s ratings are usually worse than the buyer’s rating. Thus, the seller can reduce its own cost of working capital finance which is then passed into the eco-system thereby making the underlying finished goods more competitively priced.
This concept works very well for the smaller suppliers (i.e. small/ medium enterprises and smaller corporates); however, it gets a bit blurred when the differential in the ratings of the buyer and seller is finer i.e. large suppliers.
Also, when one analyses the multinational client’s balance-sheet (i.e. account payables), one usually observes the usual 80:20 rule i.e. >80% of the procurement comes from <20% of the large suppliers. Thus, the real benefit of supply chain program to the corporate comes when these programs can also be extended by fintech to these large suppliers. These large suppliers want to compare supply chain program pricing vis-à-vis their receivables and/or working capital financing rates.
While there is sufficient margin for the fintech to on-board smaller suppliers, however, if fintech wants to scale-up these supply chain programs to significant size it needs to on-board the larger suppliers as well.
From fintech’s perspective, the crux is incremental investor appetite and liquidity at right pricing can give fintech’s ability to provide larger and more comprehensive solutions to its multinational clients (i.e. incremental revenues).
Pinnacle Trade Finance specialises on distributions & syndication solutions and can help introduce to a number of investors (both banks and institutional investors) who might be able to undertake this supply chain business on chunkier amounts and finer pricing.